## External Balance in Low Income Countries

_IMF Working Papers, October 1, 2009_

## Source details

**Canonical URL:** [External Balance in Low Income Countries](https://www.imf.org/en/publications/wp/issues/2016/12/31/external-balance-in-low-income-countries-23313)

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## Bibliographic details
- Authors: Lone Engbo Christiansen, Alessandro Prati, Luca A Ricci, Thierry Tressel
- Published: October 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873689.001

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### Summary
- Paper offers a coherent empirical analysis of the determinants of the real exchange rate, the current account, and the net foreign assets position in low income countries.
- Focuses on indicators specific to low income countries: the quality of policies and institutions, the special access to official external financing, and the role of shocks.
- Emphasizes both standard factors and low-income-country-specific factors in shaping external balances.

### Key findings
- Domestic financial liberalization is associated with higher current account balances and net foreign asset positions.
- Capital account liberalization is associated with:
  - lower current account balances,
  - lower net foreign asset positions,
  - more appreciated real exchange rates.
- Negative exogenous shocks tend to:
  - raise the current account in countries with closed capital accounts,
  - reduce the current account in countries with opened capital accounts.
- Foreign aid is progressively absorbed over time through net imports and is associated with a more depreciated real exchange rate in the long-run.

### Subject matter and keywords
- Subject: Capital account liberalization, Current account, Foreign assets, Personal income, Real exchange rates
- Keywords: current account balance, emphasizing saving, fiscal policy, income effect, terms of trade goods, trade balance, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/external-balance-in-low-income-countries-23313_